Hukou Reforms to Become New China Growth Engine: CLSA Rothman

The reforms could be costly but positive for China's shift towards services and consumption over investment and exports, said Rothman.

Any Rothman, a Shanghai-based macro strategist at CLSA Securities, predicted Monday that reforms of China's household registration system, which are imperative, will become China's new growth engine.

While striking a more cautious tone at CLSA's Investor Forum in Beijing on China's growth, Rothman said he was confident in Beijing managing a slower growth only if it could make essential reforms to the household registration, or hukou system, which deters migrants from settling in cities by being excluded from nearly all social warfare.

Growth in the world's second biggest economy has so far disappointed in 2013, Rothman told the forum. The strategist, known as a China bull, said he had already cut his annual China growth forecast to 7.6-7.8%, down from a modest 8% at the start of the year, citing overheating.

Against such a backdrop, urbanization, which is supposed to be a focus of reform by the new leadership, has emerged as a key factor in expanding consumption as growth potential declines, said Rothman. How to provide a booming tide of migrant labor during the process with necessary city resources is a big problem lying ahead for Beijing, he added.

The reforms could be costly-an equivalent of $16,000 in benefits for 245 million migrants, as estimated by government officials-but positive for China's shift towards services and consumption over investment and exports, said Rothman.

More working-age population will shift to cities, which is important to growth because the so-called demographic dividend that has led to decades of prosperity for the Chinese economy is mutating into a demographic time bomb.

With an open household registration system, the influx of more educated and more market-oriented working labor will help boost productivity in Chinese companies like in manufacturing and construction sectors where attrition rate is extremely high, he said.

Consumption will also benefit a lot from the hukou reforms when transferred payment by government turns into social insurance, allowing the 230 million migrant workers to save more and consume more, he added.

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